Breakingviews - China and Africa struggle to kick debt habit

Ethiopia's Prime Minister Abiy Ahmed and China's President Xi Jinping shake hands before their bilateral meeting at the Great Hall of the People in Beijing, China September 2, 2018. Andy Wong/Pool via REUTERS

LONDON (Reuters Breakingviews) - Just because beer is cheap, it doesn’t mean you should drink. Africa has for years been drunk on cheap Chinese credit, a habit that has led to waste and even sovereign default. China is now preaching sobriety, but neither Africa’s borrowers nor their lender are showing much appetite for restraint.

China and Africa are logical partners. Filling a gap left by Western commercial lenders, who were too expensive, and multilateral agencies, who were too slow, China’s government and banks have lent at least $136 billion to the continent this century, providing Africa with much-needed capital, and Beijing with vital natural resources.

The cash has built airports, ports and railways from Cape Town to Cairo, creating jobs. But it has also led to expensive projects, and ultimately bankruptcy and accusations by campaign groups such as London-based Jubilee of “debt-trap diplomacy” by Beijing. Angola has already restructured the $42 billion – more than a third of its GDP – that John’s Hopkins University reckons it owes Beijing, according to Reuters. Ethiopia and Zambia have also said they need to do the same.

President Xi Jinping seems to want change. On Monday, while pledging a further $60 billion over the next three years, he warned countries against “vanity projects”. Yet China has so far done little to make its lending more accountable or transparent. Export-Import Bank of China and China Development Bank, the main funding conduits, reveal few details of their loans, making it hard to gauge how much they ultimately cost African taxpayers. By contrast, World Bank projects undergo lengthy public scrutiny to show that they make economic sense and do not damage the environment.

Nor are the borrowers showing much evidence of sobriety. As it paid out the final chunk of a $918 million bailout in April, the International Monetary Fund told Ghana, a modest cocoa, gold and oil producer, to rein in its borrowing. In a meeting with Xi in Beijing, President Nana Akufo-Addo announced a 100-year infrastructure bond worth $50 billion, roughly 100 percent of its GDP. The next hangover may be even worse.

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